Under the new guidelines, ISS will recommend voting against board committees responsible for approving or setting pay for non-employee directors where there is a recurring pattern of excessive non-employee director compensation without a compelling rationale or other mitigating factors.
This may have the perverse result of limiting the ability of the lawyers and compliance officers to catch the "really big one" amid excessive officer and director disclosure.
For companies with a pattern of excessive non-employee director compensation, ISS will issue adverse vote recommendations for board committee members responsible for approving or setting the non-employee director compensation.
The new policy will apply only in situations where ISS identifies excessive non-employee director compensation over a period of two or more consecutive years, and ISS specifically noted that the new policy will not be applicable to its voting recommendations for the 2018 proxy season.
ISS has confirmed that application of this policy will not trigger a negative recommendation until meetings occurring on or after February 1, 2020 (i.e., for companies with respect to which ISS identified a pattern of excessive non-employee director pay in its review in both 2019 and 2020).
Even as they rubber stamp risky corporate practices and excessive executive pay, directors continue to win re-election to their increasingly lucrative board seats.
The company's annual report, posted on 1 October, reported an operating loss of £14m in the 13 months to June and the board came under heavy criticism for excessive payments to directors.
Excessive or unusually structured director compensation will be viewed critically by institutional investors and may draw scrutiny by regulators or potential shareholder plaintiffs.
"We always want to protect the public's health, but I think this recall is excessive," said Rosemary Mucklow, executive director of the National Meat Association, an industry group.
Based on its most recent policy update, ISS may consider director pay excessive if it exceeds pay received by the top 2 3% of directors within the same index and sector.
